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Powell Speech Preview

What’s in Today’s Report:

  • Powell Speech Preview
  • Can Strong Consumer Spending Prevent a Recession?

Futures are marginally higher following a quiet night as trader position ahead of the Powell speech later this morning.

Economic data was sparse overnight although core Japanese CPI met expectations at 0.6% y/y.

There was no trade news overnight although Kudlow (Director of the National Economic Council) said discussions between the U.S. and China were “productive” on Wednesday (although he always says that).

Today the big event is the Powell speech at 10:00 a.m. ET. From a market standpoint, the 10’s-2’s spread will tell us whether the speech is positive or negative for stocks.  If Powell is sufficiently dovish, then 10’s-2’s should widen out towards 5 basis points, and that should help stocks rally.  Conversely, if Powell is not sufficiently dovish, 10s’-2’s will invert, likely notably, and in that case, if could get a bit ugly for stocks in the afternoon.

Did the Yield Curve Actually Invert?

What’s in Today’s Report:

  • Why Italian Political Drama Matters to You
  • Did the Yield Curve Actually Invert? Only Sort Of

Futures are solidly higher this morning, rising in sympathy with EU shares as Italian political concerns ease while a German Bond auction was unexpectedly weak, both of which are helping bolster stocks.

In Italy, odds of a coalition government being formed are rising materially, reducing fears and general uncertainties surrounding new elections this fall.

Economic data was thin o/n however there was a soft 30-Year Bond auction in Germany this morning which is helping yields rise and fueling general risk-on money flows.

After a choppy start to the trading week, the list of market catalysts picks up today as there is one economic report: Existing Home Sales (E: 5.380M) but investors will be primarily focused on the July FOMC Meeting Minutes (2:00 p.m. ET).

If the Minutes release is another “hawkish disappointment” like the announcement and Powell’s press conference were in late July, we could see another wave of volatility as investors’ dovish hopes are elevated going into the Jackson Hole Economic Symposium later this week.

Updated Market Multiples

What’s in Today’s Report:

  • Market Multiple Table Updated

Futures are drifting higher this morning, tracking gains in overseas markets as the recent rally in global equities is digested amid a much quieter macro backdrop this week.

Sentiment towards the trade war has been improving since Friday as the Trump administration appears increasingly concerned with the impact of tariffs on the U.S. economy, and that is continuing to act as a mild tailwind on stocks.

There were no material economic reports or other market-moving headlines overnight.

Looking into today’s session, there are no economic reports in the U.S. however there are two more Fed officials scheduled to speak before Powell’s Jackson Hole speech on Friday: Daly (4:30 p.m. ET) and Quarles (6:00 p.m. ET).

If Daly and Quarles have a similar tone to Rosengren from yesterday, which was “less dovish” that could weigh on stocks in the after-hours session (both speakers are after the bell) as expectations for Powell to deliver a more well-defined, dovish policy outlook on Friday will be dialed back.

Why the Falling Yuan Isn’t That Big of a Threat

What’s in Today’s Report:

  • Why The Falling Yuan Isn’t That Big of a Threat

Futures are solidly higher thanks to continued momentum following Thursday’s positive close.

Stocks were short term oversold and due for a bounce, but if there’s a “reason” behind the early rally it was a Washington Post article stating the Trump administration is getting concerned about future economic growth, which might lead to a trade deal.

There were no notable economic reports overnight.

Today the calendar is more quiet as we only have two economic reports, Housing Starts (E: 1.260M) and Consumer Sentiment (E: 97.5).  But, the Huawei waiver deadline is Monday the 19th so if there are going to be waivers given, it could happen literally at any minute (generous waivers will supercharge today’s early rally if they come).

Why the Hong Kong Protests Are Weighing on Stocks

What’s in Today’s Report:

  • Why Did the Hong Kong Protests Cause a Drop in Stocks?

Futures are in the red and Treasury yields are extending the week’s declines amid continued unrest in Hong Kong, growing fears of a financial crisis in Argentina, and more broadly, rising concerns about the global economy.

The German ZEW Survey was terrible with Business Expectations hitting a 2011 low of -44.1 while the U.S. NFIB Small Business Optimism index was a modest upside surprise with the headline beating expectations at 104.7.

The most notable moves this morning are in the bond market where the 30-Yr Treasury is threatening to open with a record low yield below 2.10% while the 10s-2s spread fell below 5bp earlier this morning underscoring the risk-off money flows across asset classes. Gold is also notably up well over 1.5%, trading at fresh multi-year highs.

Today, the focus will remain on the crowded macro landscape as the market has been largely driven by overly cautious investor sentiment over the past few days however there is one economic report to watch ahead of the bell: CPI (E: 0.2%).

Bottom line, if headlines remain negative regarding Hong Kong, Argentina, and global growth, then it will be very difficult for stocks to rally today.

Tom Essaye Quoted in CNBC on August 7, 2019

“Although gold futures remain near-term overbought, momentum is decidedly higher. Fundamentally, the sharp downtrends in bond yields…” said Tom Essaye, founder of the Sevens Report, in a note.

Weighing Gold

 

Tom Essaye Quoted in Fortunly

“Although gold futures remain near-term overbought, momentum is decidedly higher. Fundamentally, the sharp downtrends in bond yields firmly support the bullish case for gold.” said Tom Essaye. Click here to read the full article.

Gold Bars

What’s Next for U.S.-China Trade?

What’s in Today’s Report:

  • What’s Next in U.S.-China Trade

Futures have recovered from overnight losses that were spurred by a weaker than expected yuan fixing by the PBOC and are now higher with EU markets as easier than expected central bank policy overseas is helping offset trade war angst and Forex concerns.

The Reserve Banks of New Zealand and India, and the Bank of Thailand all eased policy more than expected overnight triggering dovish money flows across asset classes underscored by new highs in gold (+1% to over $1500/oz.) and a global bond rally.

Economically, German Industrial Production was -1.5% vs. (E) -0.4% which largely contradicted yesterday’s solid Manufacturers’ Orders print.

There are no economic reports to watch today but there is one Fed official scheduled to speak: Evans (9:30 a.m. ET) and there is a 10 Year Treasury Note auction at 1:00 p.m. ET which could move markets, especially considering the 10s-2s yield spread is testing the lows of the year this morning, below 10 basis points.

Aside from those events, investors will remain focused on any new developments regarding the trade war as the latest tariff announcement (last Thursday) was the main source of the recent spike in volatility.

Why the Falling Yuan is Causing a Selloff

What’s in Today’s Report:

  • Why the Falling Yuan is Causing a Selloff
  • Weekly Market Preview
  • Weekly Economic Cheat Sheet

Futures and global markets are sharply lower as the U.S./China trade war intensified over the weekend.

China allowed the yuan to weaken below the psychologically important level of 7/dollar on Monday, signaling a likely acceptance of a long U.S./China trade war.

Economically, global July composite PMIs were better than feared and generally in-line with expectations, while the British services PMI easily beat estimates (51.4 vs. (E) 50.2).

Today, the key report is the ISM Non-Manufacturing PMI (E: 55.5) and the market will be looking for solid data.

Regarding U.S./China trade, undoubtedly there will be tweets flying today but there is a chance for some good news on U.S./China trade this week.  The Commerce Department may grant waivers for U.S. companies to do business with Huawei, and if that happens, it’ll help offset some of this recent trade escalation.

Short and Long Term Implications of the Fed Meeting

What’s in Today’s Report:

  • Short and Long Term Implications of the Fed’s “Hawkish” Decision
  • The sector winners (and the biggest loser) after the Fed decision
  • Oil/Energy market update

Futures are bouncing marginally as markets digest the Fed’s “hawkish cut” rate decision.

Economic data overnight was not as bad as feared, although it wasn’t good, either.  EU (46.5 vs. (E) 46.4), British (48.0 vs. (E) 47.7) and Chinese (49.9 vs. (E) 49.5) July manufacturing PMIs all beat estimates, although they also remain below 50, signaling contraction.

Today we have an important economic report, ISM Manufacturing Index (E: 51.9) and we also get weekly Jobless Claims (E: 213K), and those numbers (especially the former) could move markets.  But, beyond the data, and following the Fed’s “hawkish” decision, the keys to focus on will be the U.S. Dollar and the Treasury yield curve.  If the dollar continues to grind higher and the yield curve flattens, that will be another headwind on stocks.  Yesterday’s lows in the S&P 500 at 2959 are an important support level to watch if this market rolls over mid-day.